Author Topic: I'm still confused about 1 thing with I-bonds  (Read 1888 times)

Unionville

  • Pencil Stache
  • ****
  • Posts: 565
I'm still confused about 1 thing with I-bonds
« on: July 15, 2022, 10:37:09 AM »
Scenario:  If I buy 10,000 of Ibonds today at 9.6%, does that rate of return (for those specific bonds) stay the same for the life of the bonds ? or does the 9.6% only apply until they reissue the next set of bonds rates at the 6 month point?

If it is only applicable to 6 months, it's possible (extreme hypothetical) the feds could offer 9.6% now, 0% the next 6 month term, and then ultimately you only making half the amount for the year.

Please clarify.  Thanks.

Watchmaker

  • Handlebar Stache
  • *****
  • Posts: 1609
Re: I'm still confused about 1 thing with I-bonds
« Reply #1 on: July 15, 2022, 10:40:52 AM »
Scenario:  If I buy 10,000 of Ibonds today at 9.6%, does that rate of return (for those specific bonds) stay the same for the life of the bonds ?

I wish! No, the interest rate of the I-bond will vary as the new rates are published. You'll get that initial rate for 6 months after your purchase, then whatever the new rate is for 6 months, etc.


HPstache

  • Magnum Stache
  • ******
  • Posts: 2862
  • Age: 37
Re: I'm still confused about 1 thing with I-bonds
« Reply #2 on: July 15, 2022, 10:41:39 AM »
Scenario:  If I buy 10,000 of Ibonds today at 9.6%, does that rate of return (for those specific bonds) stay the same for the life of the bonds ? or does the 9.6% only apply until they reissue the next set of bonds rates at the 6 month point?

If it is only applicable to 6 months, it's possible (extreme hypothetical) the feds could offer 9.6% now, 0% the next 6 month term, and then ultimately you only making half the amount for the year.

Please clarify.  Thanks.

It's the latter, the 9.6% only applies until they reissue the next set of bond rates 6 months later.  It could be 0%, but not likely.  Your bond will also not lose money.

Unionville

  • Pencil Stache
  • ****
  • Posts: 565
Re: I'm still confused about 1 thing with I-bonds
« Reply #3 on: July 15, 2022, 11:09:59 AM »
Scenario:  If I buy 10,000 of Ibonds today at 9.6%, does that rate of return (for those specific bonds) stay the same for the life of the bonds ?

I wish! No, the interest rate of the I-bond will vary as the new rates are published. You'll get that initial rate for 6 months after your purchase, then whatever the new rate is for 6 months, etc.

Thanks for clarifying! I thought my pipe dream was probably too good to be true - but wanted to check. I was trying to decide it if's worth the hassle to open an account with the fed (website looks like the 1980's).

PDXTabs

  • Walrus Stache
  • *******
  • Posts: 5160
  • Age: 41
  • Location: Vancouver, WA, USA
Re: I'm still confused about 1 thing with I-bonds
« Reply #4 on: July 15, 2022, 11:13:46 AM »
Scenario:  If I buy 10,000 of Ibonds today at 9.6%, does that rate of return (for those specific bonds) stay the same for the life of the bonds ?

I wish! No, the interest rate of the I-bond will vary as the new rates are published. You'll get that initial rate for 6 months after your purchase, then whatever the new rate is for 6 months, etc.

Thanks for clarifying! I thought my pipe dream was probably too good to be true - but wanted to check. I was trying to decide it if's worth the hassle to open an account with the fed (website looks like the 1980's).

I say do it. I've been purchasing i-bonds for years. But also the same website lets you buy other US treasury bonds too.

FLBiker

  • Handlebar Stache
  • *****
  • Posts: 1792
  • Age: 47
  • Location: Canada
    • Chop Wood Carry FIRE
Re: I'm still confused about 1 thing with I-bonds
« Reply #5 on: July 15, 2022, 12:01:02 PM »
Another one in favor of doing it.  We started in October of 2021 (if memory serves) when the rate was 3.54%, thinking the next one would be higher.  Then we bought another $20K ($10K each) at 7.12% in January.  I don't know that we'll make it the full 5 years (to avoid losing 3 months of interest) but I'm very happy with I-Bonds thus far.  The website is clunky, but after the initial set up it's actually pretty easy to use.

(and apologies if I got the rates wrong -- I'm doing that from memory)

Bartlebooth

  • Stubble
  • **
  • Posts: 144
Re: I'm still confused about 1 thing with I-bonds
« Reply #6 on: July 15, 2022, 12:17:56 PM »
No one has mentioned the fixed rate, which is currently 0%, and DOES apply for the life of the bond.  As recently as May 2019 it was a non-zero amount (0.5% lol) and back around 2000 it was in the 3% range.  So someone who bought back then would be making the 3% plus current 9.62% rate.  Also note 30 year life time.

This is all laid out quite plainly on the official website: https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_iratesandterms.htm

Unionville

  • Pencil Stache
  • ****
  • Posts: 565
Re: I'm still confused about 1 thing with I-bonds
« Reply #7 on: July 15, 2022, 12:33:15 PM »
No one has mentioned the fixed rate, which is currently 0%, and DOES apply for the life of the bond.  As recently as May 2019 it was a non-zero amount (0.5% lol) and back around 2000 it was in the 3% range.  So someone who bought back then would be making the 3% plus current 9.62% rate.  Also note 30 year life time.

This is all laid out quite plainly on the official website: https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_iratesandterms.htm
Wow.  That's really interesting.  Thanks for the additional info.

seattlecyclone

  • Walrus Stache
  • *******
  • Posts: 7262
  • Age: 39
  • Location: Seattle, WA
    • My blog
Re: I'm still confused about 1 thing with I-bonds
« Reply #8 on: July 15, 2022, 01:25:07 PM »
Yeah I bought some back in 2019, getting 10.1% instead of 9.6% isn't bad!

blue_green_sparks

  • Bristles
  • ***
  • Posts: 482
  • FIRE'd 2018
Re: I'm still confused about 1 thing with I-bonds
« Reply #9 on: July 15, 2022, 07:24:25 PM »
Table is a fast way to track composite yearly rates of return

http://eyebonds.info/ibonds/index.html

For example, if you bought a I-bond on Jan 1, 1999, and held, you have a 5.80% average annual increase compounded semi-annually.

frugs

  • 5 O'Clock Shadow
  • *
  • Posts: 28
Re: I'm still confused about 1 thing with I-bonds
« Reply #10 on: July 19, 2022, 09:42:33 AM »
What is there to think about? If you don't like the rate later you can take your money and run anytime after one year mark.

HPstache

  • Magnum Stache
  • ******
  • Posts: 2862
  • Age: 37
Re: I'm still confused about 1 thing with I-bonds
« Reply #11 on: July 19, 2022, 09:47:25 AM »
What is there to think about? If you don't like the rate later you can take your money and run anytime after one year mark.

With a 3 month interest penalty until the 5-year mark.  The only thing that I really thought about before pulling the trigger was the likelihood of needing the $10K before the end of the 1st year as this was about half my emergency fund.  My plan is to build an iBond "ladder" of sorts for my emergency fund over the next 5 years.

dhc

  • Stubble
  • **
  • Posts: 169
Re: I'm still confused about 1 thing with I-bonds
« Reply #12 on: July 21, 2022, 06:33:35 PM »
The typical strategy if you’re worried about the 2nd-6-months rate is to wait until April or October when the upcoming rate is announced, and then purchase before the start of May or November.

TomTX

  • Walrus Stache
  • *******
  • Posts: 5345
  • Location: Texas
Re: I'm still confused about 1 thing with I-bonds
« Reply #13 on: August 07, 2022, 08:05:13 PM »
Scenario:  If I buy 10,000 of Ibonds today at 9.6%, does that rate of return (for those specific bonds) stay the same for the life of the bonds ? or does the 9.6% only apply until they reissue the next set of bonds rates at the 6 month point?

If it is only applicable to 6 months, it's possible (extreme hypothetical) the feds could offer 9.6% now, 0% the next 6 month term, and then ultimately you only making half the amount for the year.

Please clarify.  Thanks.

The rate for the following 6 months will be set November 1. I highly doubt inflation will have abated much (if any) by then, so I'm confident rates for the next 6 months will stay high.

Question: Even if it is 0% for the next 6 months, can you beat 4.8% with any 1-year CD or other fixed/bondlike investment?

 

Wow, a phone plan for fifteen bucks!